Director compensation: time for another look: it is the right moment to do a more thoughtful, issues-based analysis.

• Author: Ferracone, Robin A.
• Position: COMPENSATION AT WORK

IT'S BEEN A. BUSY DECADE. First, there was the recession following the dot-com bomb and 9/11 that led to Sarbanes-Oxley. Then, there was the financial bust of 2008 and '09 that led to Dodd-Frank. In the world of board directors, there really hasn't been a dull moment. As a result, not only are board directors finding themselves working harder, but they also are finding themselves increasingly at risk for being "voted off the island."

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Throughout the mid-2000s, director pay rose annually by mid-single digits. But by the time of the 2008 recession, board compensation had flattened, and, in actual terms, took a turn for the worse with deflating equity values. Most directors felt that it would not have been right for them to have taken a pay increase as their companies struggled through the recession. But now that the green shoots are appearing, many directors are wondering whether it's time to give board compensation another look. As they do so, they are considering a number of issues before making any changes, including:

* Should board pay be compared to an industry group, to a broader group, or both?

* How can the unprecedented workload be factored into the equation? After a decline in the incidence of meeting fees, is it time to either bring meeting fees back, make them a more important element in the pay mix, or ensure that the retainers are sufficient to reflect an ever-increasing workload?

* Are board pay increases warranted, and, if so, what is the right time to institute them?

* Are board leaders (e.g., nonexecutive chairs, lead directors, and committee chairs) being appropriately compensated?

* Have the vicissitudes of the stock market created special issues with respect to how directors have been compensated? Is the form of director compensation, particularly with respect to equity, appropriate?

* Should the board use the same consultant for director compensation as for executive compensation? Is there a conflict in using the same consultant for both?

Specific answers will, and should, differ by company. But all companies should have the benefit of drawing upon a sound fact base that provides insight and helps them arrive at decisions that are balanced and defensible. Farient's perspectives are:

Peer group(s): Because board directors are recruited from many industries, directors should consider competitive data both pertaining to their industry and across a broader group of size-appropriate companies. (Why...